Increasing the Supply of Affordable Child Care

November 30, 2011

With more children spending time in nonparental care, concerns about the quality of out-of-home care have increased, leading state and local governments to regulate and license facilities and caregivers. However, these barriers to entry make it more costly to become a child care provider, driving up the price of nonparental care, says Diana W. Thomas, an assistant professor of economics at Utah State University.

The proportion of children who receive care in large institutions (day cares and preschools) and the proportion who receive care by relatives have both increased in recent years. For example, according to U.S. Census data:

The portion of children under age five who were in a day care center or preschool rose from 30 percent in 1995 to about 35 percent in 2005.

Care by relatives (other than a parent) rose from 42 percent to 46 percent.

By contrast, the portion of children in family day care -- that is, child care for a small number of children in the home of an unrelated provider -- fell from 20 percent to 14 percent.

With rising prices, families have to spend ever-larger shares of their income on child care. Consider:

Families with $4,500 or more in monthly family income spend only 7 percent of their income on child care.

Families with less than $1,500 in monthly family income spend on average 30 percent of their income on child care.

The cost of child care is often so high that it becomes the deciding factor in a family's decision whether to rely on welfare or seek employment.

Public policies regarding child care generally have one or two goals: 1) raising the quality of child care to improve outcomes for the children, and/or 2) increasing the availability and affordability of child care to enable parents to pursue careers or education. The first goal is mostly pursued on the state level through regulation, such as group size limits, zoning laws and licensing requirements. The second goal is pursued through various federal child care subsidy programs. Unfortunately, state and local regulations significantly affect the price of care without improving quality, and federally subsidized programs are often plagued with long wait lists.

Regulatory relief should not come at the expense of the quality of child care; it is therefore important to take a critical look at existing regulations and their effects on price and quality.